Long Story and Some Numbers

[markarsenal]

Not seeking advice as just writing my 'story'. I have some major changes that will be coming in the next year that I see as a challenge and an opportunity to get simpler and have a less stressful life. In the meantime my next year will likely be one of the most stressful ever.

I spent 9 years in a relationship that ended in 2010. upon splitting up, we divided our cash and debt evenly. I ended up with about $20k cash and $20k debt (credit cards).

In the next few years I had my mid-life post-break-up crisis and pretty much didn't pay off any of that debt. Had a good job and spent just about everything on travel (mostly). Because I left just about everything behind after the breakup, I didn't spend much on "stuff" and remained fairly simple from a material-possessions standpoint. I had a small room in San Francisco in an apartment with a roommate.

In 2012-2013 I had some major health crises (nothing debilitating but just very sudden and unusual for a person with no history of health problems). This made me even more "in the moment" and I was on the verge of bailing on my job and just scampering off on a trip around Europe or something to blow the (now) $30k in cash savings I had.

Luckily I suddenly fell in love with a little community in the North Bay Area and decided to quickly turn that money into a down payment on a house rather than a months-long party.

But having a house on my own was a real financial challenge. A year later I was back to having about $20k in cash saved back up (what I consider a minimum "rainy day" fund) but my CC debt had ballooned to $35k from furnishing the house, repairs, and having to put living expenses on CCs so I could use my cash for a contractor to fix up a guest cottage on the property.

In the past year I've kept my 401k and IRA contributions at their max, and saved a little in a TreasuryDirect account. So my balance sheet looks something like:

- CC Debt $35k (Balance Xfer arbitraged at 0% for the next 6-12 months)
- Cash $30k
- 401k/IRA/TreasuryDirect $30k
- Mortgage balance $250k (Monthly pmt $1800 @~4.5%)

I have eliminated my travel and "adventure" spending completely since buying the house. All my free cash flow has gone into it instead. I'm at a point now where that's also done and I can pour all my income into saving and paying off debt.

EXCEPT: I found out recently that my primary job will be going away in the next 6-9 months. I've spent the summer experimenting with new job ideas and found that rather than staying in the rat race at my current income level, I'd rather move to a new career in hospitality which will cut my income by about 75%-80%. So: I pretty much have to plan on not building much more savings, and just paying off debt so that my living expenses are lower when the income dries up.

Am I crazy for making that sort of plan for the adjustment or should I buck up and aim for continuing the rat race so I can save more? Thoughts? Ask any questions if you want clarification on any items. Appreciate the input!

[RoseFI]

Well, you start off saying you're not asking for advice, but then you end with asking advice... so I'll defer to your latter thought. Based on a life experience somewhat similar to yours, I would say that while you can give up the "rat race" if that means working at a job you hate/don't have values alignment with, I would not give up your current income level (or something close to it) until you have done away with that credit card debt. It will be worth it, believe me, to work your derriere off for a few more years to get THOSE shackles off. Credit card debt is inherently financially destabilizing - it is a thin line to real financial vulnerability. It's the opposite of financial freedom, in terms of being able to do what you want/when you want, as your impending layoff and the need to second guess the "follow-your-bliss" plan shows.

When I had a higher level of cc debt than you, I asked for a raise on my "bread and butter job" and took on a second job (with New Road Map Foundation -- how I learned all this great financial discipline!) and worked about 60 hours/week at jobs that I both enjoyed and felt good about. It was a killer, though, especially due to the medical issues that contributed to that debt. But it was temporary. Thanks to that and selling off some assets, I got rid of the debt in about 2 years. You would not believe how everything in my life shifted at that point. Really, it's worth it - life without debt is amazing. This society is built to suck off of debtors and reward people who have money with more money, even if they don't work for it. It's sick, but now that I'm not a debtor, I have the freedom to devote my labor to changing that.

You obviously have some good financial discipline when you want to, judging by your ability to build up savings so quickly, and you have a good instincts and a smart plan to make your main asset pay for itself with rental income on that ADU. I have every confidence you will not get sucked back in to the rat race for any longer than it takes to get rid of the cc debt. :cool:

[razz]

Welcome to the forums. In effect, you owe $255,000. Can you unload some of that liability in order to make an alternate choice if that is your preference.
Lay out all you options, add the risks and benefits and make an informed decision.

[markarsenal]

Welcome to the forums. In effect, you owe $255,000. Can you unload some of that liability in order to make an alternate choice if that is your preference.
Lay out all you options, add the risks and benefits and make an informed decision.

Agreed on that number, theoretically. But my personal philosophy is such that I don't entirely consider the mortgage debt to be the same as the CC debt. Housing is sort of a means to an end for me, so I don't really prioritize owning "free and clear". If I was free of the CC debt I would consider myself free of material financial obligations, since if I couldn't afford the house, I just sell it or leave it behind (depending on the RE market of the moment).

I've been AirBnBing the cottage for the summer and it's paying about 120% of the monthly carrying cost of the whole property - that will only work during the "season" here (roughly May-Sept) and would be killed if there's a flood, or if the tech economy tanks (or if there's a war or alien invasion, or... or...), but theoretically I could live with very little housing costs in the current holding pattern.

I plan to dip somewhat into savings to get the CC debt to zero as it falls off its 0% offers (the next 6-9 months), at which point I estimate I'll be down to about $15k cash and zero CC debt right around the time that my job goes away.

[ToomuchStuff]

Since your confusing no advice, but please give me some advice, how about a question. Since you know of an impending job loss, why not see if you can live on that 20% of your salary, while paying your mortgage, and having no emergency fund and trying to pay off $5000. (this is effectively what you say your facing possibly in that time)
In that senario, can you pay off the remaining CC debt? (assuming the emergency fund has been used on the CC)
Can you build up a new emergency fund?
Can you not miss house payments, insurance, etc? (while still eating etc) Would you have qualified for that kind of house note, on 20% of your income?
Have you done research into actual income of what you want to go into?
Plan on working second and third jobs (and the extra stress) and/or having room mates?

I think you should at the minimum spend two months, doing what your planning on doing now, while asking and answering those questions.

[Davidwd]

Debt is an unecessary expense, especially CC debt. I had quite a strict upbringing and my Father always made it understood that if I could not pay for something that means I could not afford it (mortgage excluded). I still live by that rule today. When I had a mortgage I made extra payments by as much as I could afford and paid it off quite quickly. Life is so much easier without monthly outgoing commitments. I never take debt on in any form. Interest rates are at record lows, they are forecast to rise next year. When they start to move in a direction they tend to continue moving in that direction, now would be a good time to protect yourself and pay off as much debt as possible while rates are low.

[sweetana3]

As an alternative, can you rent your big house and live in the guest house for a fixed period like 2-3 years? Sounds like you are in a prime rental area.

[Rachel]

You sound like a resourceful, energetic person with some great money skills. I'm going to go ahead and give advice. Pay off that CC debt! Just do it. Less debt = more choices. With the career switch, figure out what it will take to live on the lesser income and reflect what you might need to do to make that happen. Stay in touch here and let us know how things are going. Lots of people on these boards have paid off debt and transitioned to cheaper/simpler lifestyles.

[eleighj]

You sound like a resourceful, energetic person with some great money skills. I'm going to go ahead and give advice. Pay off that CC debt! Just do it. Less debt = more choices. With the career switch, figure out what it will take to live on the lesser income and reflect what you might need to do to make that happen. Stay in touch here and let us know how things are going. Lots of people on these boards have paid off debt and transitioned to cheaper/simpler lifestyles.

Ditto!!!:)

Ed

[rodeosweetheart]

I would pay off the credit cards, because unless you do that, you are a slave to them. Then, see what you think you should do with respect to job and house issues.

[markarsenal]

I know, I know - no advice but omg advc plz ;-)


Since your confusing no advice, but please give me some advice, how about a question. Since you know of an impending job loss, why not see if you can live on that 20% of your salary, while paying your mortgage, and having no emergency fund and trying to pay off $5000. (this is effectively what you say your facing possibly in that time)

Some responses inline. Admitted, I can't tell my "whole story" in the context of a forum post so I give a sample of it and then you guys help me figure out which missing details matter.


In that senario, can you pay off the remaining CC debt? (assuming the emergency fund has been used on the CC)
Can you build up a new emergency fund?


The assumption here is that by the time the layoff happens (likely late Spring 2015), I will have all CC debt paid, AND have about $15k emergency fund. Right now I have $30k e-fund and $35k CC debt; I think I can get the CC debt down to about $15k between now and the time the promo rates expire, then just pay it all off from e-fund at that time.


Can you not miss house payments, insurance, etc? (while still eating etc) Would you have qualified for that kind of house note, on 20% of your income?

I have stellar credit (which is how I manage to carry so much CC debt at promo rates) so I would not want to miss payments on anything - never have before. When I bought the house it was at about 50% of what I qualified for. Right now, I vacay-rent the main house and live in the cottage I built on the property, so my actual after-rent housing is almost zero (except a couple months during low season). If that can continue, my housing situation will generally not be affected by my income going forward. And if it is, I lose (sell) the house (no biggie).


Have you done research into actual income of what you want to go into?
Plan on working second and third jobs (and the extra stress) and/or having room mates?

Actually, yes right now I'm workinig 3-4 jobs depending on ones definition of job. 40hrs/wk I do the rat race which gives me about 90% of my current income. Another 20 hrs/wk or so I am working at a resort, a bar, and DJing. If I could devote 30-40 more hrs/wk to the latter 3 instead of the rat race, I'd probably come out about 20-25% of my current income, but be doing something fun that I love. And devoting myself full-time to that work would probably mean I'd get better at it faster and start earning better rates eventually.

As for roommates, the house is already a vacay rental (much better from a legal/liability perspective than f/t renters or roomies) and the cottage is only 120sqft so two would be a crowd ;-)


I think you should at the minimum spend two months, doing what your planning on doing now, while asking and answering those questions.

Yep. I'm not planning on quitting voluntarily until the CC debt is gone. My main thrust here is adjusting from being a big saver with a large surplus and a "respectable" career track to what will likely be a paycheck-to-paycheck lifestyle with the type of career track most people don't find respectable/sustainable. So the motive of this post is the combination of income fear and my lifelong fear of not delivering the measure of "success" my parents taught me to value (eg, 40-hr office job with a tie). The first one is easy if you have good survival instincts, the second one is much harder!

[markarsenal]

Debt is an unecessary expense, especially CC debt. I had quite a strict upbringing and my Father always made it understood that if I could not pay for something that means I could not afford it (mortgage excluded). I still live by that rule today. When I had a mortgage I made extra payments by as much as I could afford and paid it off quite quickly. Life is so much easier without monthly outgoing commitments. I never take debt on in any form. Interest rates are at record lows, they are forecast to rise next year. When they start to move in a direction they tend to continue moving in that direction, now would be a good time to protect yourself and pay off as much debt as possible while rates are low.

Yep. Agreed. The debt was largely a result of the breakup (I wrote a CC cash advance check to cover my 'share' of the ex's student loans), and I just never gave it priority in the subsequent years until recently.

[markarsenal]

As an alternative, can you rent your big house and live in the guest house for a fixed period like 2-3 years? Sounds like you are in a prime rental area.

That's the current situation, actually - sorry if I didn't make that clear.